COLEMAN ART NUSEN 601 EXHIBIT 4 Personal Membership Categories and Revenues by Year, 2000-2004 Membership Category_Amores Number of Members 2003 2002 2001 Regular 2000 $50 1362 Associate 12.248 13.83 16 353 $100 17.-58 2.596 Collector 2558 2.576 2 565 $250 364 Patron 461 $500 102 85 65 0 Partner $1.500 004 638 679 -41 Director's Club 682 $5.000 Total membership 91 S6 17.429 15.815 17370 20.131 21.559 Membersbig Revenue 2004 2003 2002 2001 2000 Regular $50 $039.663 $556.120 $611.86% $600.185 $662.631 Associate $100 234,871 232 398 249.312 244,961 242981 Collector $250 81,415 76.987 97.44 108.32 105.840 Patron $500 48.100 44.293 35.500 0 0 Partner $1.500 815.606 958-19 968.239 1.187.728 1.041.898 Director's Club $5,000 406,673 405.016 458.938 282 219 0 Total membership $2.298, 19 $2.334.583 $2.485.352 $2451.638 $2,079330 revenuen "The number of memberships times the dollar value does not equal the amounts given as the membership revenue, since some memberships are given gratis The inconsistency between these figures and the figures shown on the income and expense satement is due to memberships given gratis members that fall into the $1.000 category are given 25 employee memberships those in the $10,000 category are given 250 such memberships. The direct cost of benefits provided by CAM to personal and corporate mem- bers was estimated by the museum's accounting firm. CAM was required to do this because of income tax laws that limited the deductibility of membership to the difference between the direct cost of membership and the value of the ben- efits received. The estimated total cost of member benefits provided exceeded $1 million each year since 2000. An itemized summary of benefit costs by cat- egory in 2004 follows. Category Regular (50) Associate ($100) Collector ($250) Patron ($500) Partner ($1.500) Director's Club ($5,000) Corporate (all categories) Total cost Benefit Cost $631,016 81.903 61.135 39,628 99.567 15.975 125.576 $1.057.800 The estimated cost of benefits exceeds the membership expense shown in Ethibit 2 because the cost of publications and other items is included in this estimate. These costs are allocated across se cral different items in Exhibit 2. CHAPTER 9 MARKETING STRATEGY REPORMULATION: THE CONTROL PROX COLEMA The principal cost items in each category were (1) free admissions to hibits; (2) parking: (3) the monthly calendar of museum activities, exhibits, and events; and (4) discounts at the Skyline Buffet restaurant and gift shop. Member Recruiting and Renewals "Recruiting new members and renewing and renewals occur at the museum during visitation, the recruitment effort mostly revolves around mail, telephone, and personal solicitations. Mail and telephone solicitations focus primarily on recruiting and renewing personal memberships are used to recruit and renew personal memberships in the $500 to $5,000 $21. in the $50 to $250 categories. Personal solicitations by the Museum Association existing members is a major undertaking," said Mercer. While some recruiting egories and corporate memberships. CAM uses mailing and telephone lists obtained from other cultural organiza. tions and list agencies. These lists are culled to target zip codes and telephone prefix numbers. Mail solicitations include a letter from the museum director, a brochure describing the museum, and a membership application form. Tele phone solicitations include a follow-up brochure and application form. The economics of direct-mail solicitation are illustrated below, based on an August 2004 mailing considered typical by Mercer, Total mail solicitations 148,530 Total memberships obtained 1,532 Response rate 1.03% Total membership revenue $84,280.00 Total direct-mail costs $66,488.80 Two direct-mail solicitations of this magnitude are conducted each year. The solicitation process for personal memberships in larger dollar categories and corporate memberships relies on personal contact by CAM volunteers and corporate member executives. Prospective members are identified on the basis of personal contacts and from the lapsed membership roster, the society page, other organizations' membership lists, and lower-membership-level lists. Once identified, these prospects are approached on a one-to-one basis. An initial letter is sent introducing the prospect to the museum. This first letter is followed by a personal telephone call or another letter inviting the prospect to an informal gathering at the museum. At the gathering, the prospect is introduced to other members and is asked directly to become a member, Renewal efforts include mail, telephone, and Internet solicitation. In addi- tion, membership parties, special previews, and special inserts in the monthly calendar of CAM activities are used. Museum records indicate that 70 percent of the $50 members do not renew their membership after the first year. Among those that do, 50 percent renew in cach successive year. Members in the $100 to $500 categories have a renewal rate of 60 percent , and members in the $1,500 and $5,000 categories have a renewal rate of 85 percent. Mercer believed that less than 10 percent of personal members who do renew their membership increase the dollar value of their membership. Re newal rates among corporate members is about 75 percent, regardless of category CONSIDERATIONS FOR 2005 Ashley Mercer and Donald Smith met to discuss measures they might recommend Smith noted that at an earlier meeting with his staff, personnel reductions were to the Board of Trustees to reverse the deteriorating financial condition of CAM. 603 discussed. Specifically, he felt that a 10 percent reduction in personnel and admin- istration costs was possible. Furthermore, his staff estimated that the appropria- tion from Fannel County, contributions, grants, investment income, endowment earnings, and other income would be 15 percent below 2004 levels. A best guess" estimate from the director of collections and exhibitions indicated that special exhibitions and events would generate revenues of $1.2 million and cost $675,000 in 2005. Parking revenues and expenses resulting from nonmember visi- tors would remain unchanged from 2004. Rough budgets for education programs indicated that an expenditure of $500,000 for 2005 was realistic, given planned efforts. Smith said that changes in other auxiliary activities for which he was re sponsible, namely the Skyline Buffet restaurant and gift shop, were not planned. Mercer was impressed with the attention Smith had already given to the mu- seum's situation. She too had given consideration to matters of museum image, Visitation, and membership prior to the meeting. Unfortunately, an earlier meet- ing with her staff had raised more issues than hard-and-fast recommendations. Staff suggestions ranged from implementing a modest admission fee of $2 per adult (with no charge for children under 12 years old) to instituting student (ages 13 to 22) and senior citizen (60 and older) memberships at $30. The need for institutional advertising was raised, since CAM had been promoting only spe- cial exhibitions and events. Other staff members said that the benefits given to members needed to be enhanced. For example, raising discounts at the Skyline Buffet and gift shop to 20 percent was suggested. Another possibility raised was commissioning a "coffee table" book featuring major artwork at CAM to be given with personal memberships of $500 or more. Mercer listened to these suggestions, knowing that some were unlikely to receive Board of Trustee approval. These included any proposal to increase ex- penses for publications/public information (for example, new books and paid institutional advertising). She had already been informed that expenses for such activities could not exceed the 2004 expenditure. Improving the member ben- efit package seemed like a good idea. Increasing restaurant and gift shop dis- counts, even though 65 percent of the business for both was already on discount, seemed like a good idea, at least at the margin. Smith said that he would give this suggestion consideration, but asked that Mercer think further about it in the context of the overall member-benefit package. Charging a nominal admission fee for nonmembers also seemed reasonable. Visitor surveys had shown that 50 percent of nonmember visitors said that they would be willing to pay a $2 admission fee for viewing the permanent collection (access to special exhibitions would continue to have admission fees). Furthermore, members could then be given an additional benefit, that is, free admission. However, Smith noted that CAM had always prided itself on free access, and he wondered how the Board of Trustees would view this suggestion. Additional membership categories below $50 and for students and senior citizens also seemed to provide new opportuni- ties to attract segments of the population that had not typically yielded members Mercer and Smith believed that their initial meeting had produced some good ideas, but both thought that they had to give these matters further thought. They agreed to meet again and begin to prepare an integrated plan of action and a pro forma income statement for 2005. om with the local Museum Hentes 究 Case Coleman Art Museum MUSEU Donald Smith, clirector of finance and achinistration of the Coleman Art Museum In early 2005. Ashley Mercer, director of development and community altas met to discuss what had transpire at a meeting the previous afternoon. The meet Ing. attended by the senior staff of the museum and several members of the ward assigned responsibility for making recommendations that would reverse the situation, Museum recorded its third consecutive annual loss in 2001, and Mercer and Smith were of Trustees, and focused on the financial status of the museum. The Coleman An COLEMAN ART MUSEUM The Coleman Art Museum (CAM) is a not-for-profit corporation located in Univer the museum was originally chartered as the Fannel County Museum of Fine Arts sal City, a large metropolitan area in the western United States. Founded in 1925 and funded by an annual appropriation from Fannel County. In 2000, the name was changed to the Jonathon A. Coleman Art Museum to recognize the museums major benefactor, Jonathon A. Coleman Coleman, a wealthy local landowner and philanthropist, had provided the museum with a sizable endowment. Ae! cording to the terms of a $25 million gift given to the muscum upon his death the museum's charter was revised and its name changed. The charter of the mu. seum stated that its purpose was To provide an inviting setting for the appreciation of art in its historical and cul- tural contexts for the benefit of this and successive generations of Fannel County citizens and visitors Randall Brent III, the museum director, noted that this charter differentiated CAM from other art museums. He said: Our charter gives us both an opportunity and a challenge. By spanning both art and history, the museum offers a unique perspective on both. On the other hand, a person can only truly appreciate what we have here if they are willing to be come historically literate-that is our challenge In 1997, CAM benefited from a $28 million county bond election, which led to the construction of a new and expanded facility in the central business district This case was prepared by Professor Roger A. Kerin, of the Edwin L. Cox School of Business, South- em Methodist University, as a basis for discussion and is not designed to illustrate effective or ineffective handling of an administrative situation. The museum name and certain operating data are disguised and not useful for rusearch purposes. Copyright © 2006 by Roger A. Kerin. No part of this case may be reproduced without the written permission of the copyright holder. 594 Case DEMANART Coleman Art Museum Donald Smith, director of finance and administration of the Coleman Art Max MU In early 2005, Ashley Mercer, director of development and community affairs met to discuss what had transpired at a meeting the previous aftemoon Theme ing, attended by the senior staff of the museum and several members of the lower of Trustees, had focused on the financial status of the museum. The Coleman de Museum recorded its third consecutive annual loss in 2001, and Mercer and Smith we assigned responsibility for making recommendations that would reverse the situatie COLEMAN ART MUSEUM The Coleman Art Museum (CAM) is a not-for-profit corporation located in Univer sal City, a large metropolitan area in the western United States. Founded in 1925 the museum was originally chartered as the Fannel County Museum of Fine Art and funded by an annual appropriation from Fannel County. In 2000, the num was changed to the Jonathon A. Coleman Art Museum to recognize the museum major benefactor, Jonathon A. Coleman. Coleman, a wealthy local landowner and philanthropist, had provided the museum with a sizable endowment de cording to the terms of a $25 million gift given to the museum upon his death the museum's charter was revised and its name changed. The charter of them seum stated that its purpose was To provide an inviting setting for the appreciation of art in its historical and cul tural contexts for the benefit of this and successive generations of Fannel County citizens and visitors Randall Brent III, the museum director, noted that this charter differentiated CAM from other art museums. He said: Our charter gives us both an opportunity and a challenge. By spanning both an and history, the museum offers a unique perspective on both. On the other hand a person can only truly appreciate what we have here if they are willing to be come historically literate that is our challenge. to the construction of a new and expanded facility in the central business dinero In 1997, CAM benefited from a $28 million county bond election, which w This case was prepared by Professor Roger A kerin, of the Edwin L Cox School of Bus ineffective handling of an administrative situation. The museum name and certain operator em Methodist University, as a basis for class discussion and is not designed to illustrate ele disguised and not useful for research purposes Copyright 2006 by Roger A keron No put case may be reproduced without the written permission of the copyright holder UMAN ART MUSEUM of Universal City, the county seat of Pannel County. The location. Six braces through public transportation. The site was made available for $1.00 from one- 595 thon Coleman's real estate holdings. Ar the dedication of CAM in January 2008 Brent said: I will always believe that the greatest strength of our new museum is that it was publicly mandated. The citireas of Pannel County and the vision and geneem of Jonathon Coleman have provided the setting for the appreciation of an and ma historical and cultural contexts. As stewards of this public trust the Contenun an Museum can now focus on collecting significant works of an encouraging schroth arship and education, and decoding the history and culture of an MUSEUM COLLECTION AND DISPLAY CAM has over 15,000 works of art in its permanent collection. However, as with most museums, CAM does not display all of its collection at the same time be cause of space limitations. Artworks in the collection are routed, with some per odically loaned to other museums. The CAM collection includes pre-Columbian, African and Depressionem a as well as European and American decorative arts. The art is displayed in differ ent portions of the museum, where the building architecture accents the display For example, Depressionera art is displayed in an Art Deco setting of the 1920 and 1930s; decorative and architectural art of the late nineteenth century is dish played in the Art Nouveau wing. In addition, museum docents provide a histor- cal context for the artworks during tours. The CAM collection is open for viewing Monday through Saturday from 10:00 A.M. to 6:00 P.M. and Thursday evenings until 8:00 PM Sunday hours are from 12:00 noon to 6:00 P.M. There is no charge for viewing the permanent collec- tion; however, a modest fee of $5.00 to $7.50 is charged for special exhibitions CAM is also available for private showings and is often used for corporate, foun- dation, and various fund-raising events during weekday and weekend evenings Exhibit 1 shows museum attendance for the period 1996-2004. EXHIBIT 1 Museum Attendance Total Museum Attendance Special Edition Proportion of Amendance Year 1996 NA N 1997 1998 NA NA 3 NS 1999 NA 2000 269.786 247,799 303.456 247.379 607,949 486,009 527,091 468,100 628,472 2001 2002 220,862 140,425 227,70 203.800 284,805 2003 2004 aSpecial exhibitions attendance includes attendance at private comparation Foundation, and fund-raising events held at the museum. ERROSTING STRATEGY RETORNILLOON THE CONOLFROG Museum Organization the museum in a variety of capacities The museums organized by function (1) Collections and Exhibitions, (2) Deres opean Community is and G) Finance and Administration Each fanc- beaded actor who reports to the museum director, Randall Been The musum has a sult of ISS employees. In addition, 25 volunteers work z The Collections and Exhibitions sex headed by Thomas Crane, oversees the museumsan collections anges special exhibits is responsible for educational gaming and provides personnel and administrative support for museum rents that directly involve the artwork. The Finance and Administration headed by Donald Smith is responsible for the daily operation of the mo- eum. The museus probe centens (the Skyline Buffet restaurant, parking at sites and secial exhibicions events are also managed by this function. The de velopment and Community Afrais seaff, under the direction of Ashley Merce sensible for marketing public relations, membership, and grants. This forca som engages is funding for the museum, which provides supplemental force for general operating sport, endowment, and acquisitions. This function also handles all applications for foundation, federal state, and local grants. Museum Finances Edit2 shows the financial condition of CAM for the period 2002-2004. Total nues and expenses during this period are shown below: $10.94.110 11.11825 $385.9153 2003 57.83.712 -96-550 2002 $8.698.121 8.920.6 ($ 226.555 (5 The three consecutive years of losses followed seven consecutive years of either breakeren or probable sanas. The cumulative loss of 795,066 had depleted the During a recent Board of Trustees meeting several observations and projec- sons were made the indicated that the museum's financial condition needed 1. The appropriation from Panel County would decline. Whereas the con appropriated about $2 million annually to CAM, the museum could expect no more than $16 million in county appropriations in 2005 and for the foreseeable future. 2 Low interest rates in 2008 and 2004 indicated that earnings from CAN endowment and investments would probably remain flat or decline. 2. Income for grants and other contributions in 2004 were extraordinan and it was unlikely that the same amounts would be forthcoming in 2005 4. Membership revenues were down for the fifth consecutive year. Member sihip represented the single largest source of revenue for the museum 5. Income from day activities those that were intended to produce proft-comed to show a positive contribution to museum operacions Secal abitions and events were very profitable. Nevertheless limited av bit of special athibitions in 2005. a declining number of scheduled even ancing costs for insurance is an example) indicated that the revenues from sach its old probably decline and costs increase in 2005. The Sky Case Coleman Art Museum COLEMAN ART MUSEUM CHATRONARNING MINNIERON UN ating at about break even Buffet restaurant, gift shop and parking, and the Masummat we MUSEUM MARKETING As director of development and communications Ashley Mercer was to sible for marketing at CAM. Her specie pamiilities Tolurem och image of the museum, increasing munum visitation, and buildmg museum berships Reflecting on her responsibilities, she said In reality, museum image, visitation, and membership are intermmple Images influences visitation and membership Visitation is apten samewhere ship, but membership seems to also are visitation and, ma sukai the image of the museum Museum Image Interest in the public image of CAM degan soon atter the new facility was bei icated. The new four story building, simard downtown adiacem to skusco ers, was occasionally referred to as the "marhi box by its cities, stes the building facade contained Talian marble. When asked abom im terem commented: It is basically correct to say that in the mind of the public Chusmors There is nothing about this building the sum a museum.ar Cant There are a lot of people that are not interested in high outure and think this is drive-in bank or an office building Most art museums in America have a problem with image Om ai the things that makes me mad is that people think there is something wrong with them seum. CAM is one of the most public in the country, and more onenie on the membership contribution than any other museum mass endowed and underfunded from reliable public funds. Im the Amer sociation of Museums reports that onts abam 10 percent of Americans art museums have enough income from their endowmem to the ing costs. Nevertheless, this institution has chosen to be public, with and this is very noble. It is wonderful that the museum has acte amo to an agglomeration of very nich people This museum has more character than it thinks It has he has the rest anced collection between Western and mon Westman af any muscum country. We have not chosen to sell or promote the unique aspects of the tion or the museum's emphasis on historical contem. What we have are the muk ings of an institution that is very different from other muscuns, ane w be able to make that into an advantage Tuther than apologia Other staff members believed either that an image sisted her was effort to create an image for itself. According to Mercer Based on our marketing research, I think there are two distinct altfor ages. One is a non-image. People don't know when the museum The don't know what we have to offer an the way of lunch, dimesseramah movies, etc. They are not familiar with our collections. They are stil however, that their commumity has a beautiful art museum The other images that we are and for specific people. This tuge ably based on our membership Abox 5 percent members as educated compared to 70 percent of the counts panna 60 percent have household comes in. 70.000 (antra for the various publics the museum served or that CANI had a mac